The United States

1. President Trump’s decision to impose steep tariffs on steel and aluminum imports sent shockwaves through the stock market (more in the Equities section). This development should not be a surprise to the Daily Shot readers (for example, see #6 here).

The decision to tax steel and aluminum imports was a political move that should, in theory, play well in races such as Pennsylvania’s district 18 special elections. The larger question, however, is whether the US wants to compete in the industrial commodities businesses that had peaked decades ago. Boosting these industries will be at the expense of value-added manufacturing, which has rebounded in recent years. Even China is now shifting out of these “old economy” sectors (#2 here). Ironically, higher import prices for industrial materials may encourage some firms to move more production outside of the US.

From the consumer’s perspective, these tariffs mean higher prices on thousands of products – from US-made cars to beer cans.

2. Most economists agree that inflation in the US is on the rise. However, the increases remain modest. Below is the core PCE inflation measure.

And here is an alternative index – the “trimmed mean” PCE inflation rate.

One area that saw a sharp price uptick was hospital services. It’s not clear, however, that these increase will be sustained going forward.

Source: Pantheon Macroeconomics

3. Real personal spending slowed in January.

4. The US initial jobless claims hit the lowest level since 1969 as the labor market continues to strengthen.

5. The ISM’s February manufacturing index exceeded expectations, although some components of the report were less than ideal.

• On the positive side, US manufacturing employment growth bounced back from January.

• And the export orders index rose further as the weak dollar helps US manufacturers compete.

• However, part of the increase in the overall ISM index was due to slower supplier deliveries. While that could indicate a higher manufacturing demand (suppliers can’t keep up), there may be other reasons for the slowdown (as we saw after the hurricanes).

• Also, the factory input price index rose to the highest level since 2011 (in part as a result of a weaker dollar). Note that the new tariffs will exacerbate manufacturers’ price inflation.

Equity Markets

1. The aluminum and steel import tariffs spooked the equity markets. Sharply higher prices for these materials will hurt US industrial companies, making it harder for them to compete internationally. Here are some examples of the manufacturing firms that have underperformed the market on Thursday.

• Caterpillar:

• Deere:

• GM:

This is the industrials ETF vs. the S&P 500 over the past week.

2. On the other hand, some “old economy” stocks rose on the tariffs announcement.

• US Steel:

• Century Aluminum:

• The SPDR Metals & Mining ETF.

3. Next are some updates on the volatility markets.

• VIX futures jumped.

• The VIX curve went deeper into backwardation.

• Here is the S&P 500 historical volatility.

Source: Bloomberg

4. Despite the recent volatility, there are still too few bearish investors, making the market vulnerable to sharp selloffs.

The Daily Shot provides objective and disinterested analysis and commentary regarding macroeconomic and market trends. Other than indirectly through country or sector specific exchange-traded or mutual funds, the author of the Daily Shot does not have any interest in or own any of the individual securities which may be mentioned. The Daily Shot does not provide investment advice or any recommendations regarding particular securities. Nothing in the Daily Shot should be relied upon in making an investment decision, nor considered to be a solicitation to offer or buy any securities.